What QE means for the world

Positive-sum currency wars

Brazil’s finance minister coined the term “currency wars” in 2010 to describe how the Federal Reserve’s quantitative easing was pushing up other countries’ currencies. Headline writers and policy makers have resurrected the phrase to describe the Japanese government and central bank’s pursuit of a much more aggressive monetary policy, motivated in part by the strength of the yen.

The clear implication of the term “war” is that these policies are zero-sum games: America and Japan are trying to push down their currencies to boost exports and limit imports, and thereby divert demand from their trading partners to themselves. Currency warriors regularly invoke the 1930s as a cautionary tale. In their retelling, countries that abandoned the gold standard enjoyed a de facto devaluation, luring others into beggar-thy-neighbor devaluations that sucked the world into vortex of protectionism and economic self-destruction.

But as our leader this week argues, this story fundamentally misrepresents what is going on now, and as I will argue below, what went on in the 1930s. To understand why, consider how monetary policy influences the trade balance and the exchange rate.

Typically, a central bank eases by lowering the short-term interest rate. When that rate is stuck at zero, it can buy bonds, i.e. conduct quantitative easing (QE), or verbally commit to keep the short rate low for longer, or it can raise expected inflation. All these conventional and unconventional actions work the same way: by lowering the real (inflation-adjusted) interest rate, they stimulate domestic demand and consumption. America, Britain and Japan are all doing this, although only Japan has explicitly sought to raise expected inflation; America and Britain have done so implicitly. This pushes the exchange rate down in two ways. First, a lower interest rate reduces a currency’s relative expected return, so it has to cheapen until expected future appreciation overcomes the unfavorable interest rate differential. This boosts exports and depresses imports, raising the trade balance. Second, higher inflation reduces a currency’s real value and thus ought to lead to depreciation. But higher inflation also erodes the competitive benefit of the lower exchange rate, offsetting any positive impact on trade.

If this were the end of the story, the currency warriors would have a point. But it isn’t. The whole point of lowering real interest rates is to stimulate consumption and investment which ordinarily leads to higher, not lower, imports. If this is done in conjunction with looser fiscal policy (as is now the case in Japan), the boost to imports is even stronger. Thus, QE’s impact on its trading partners may be positive or negative; it depends on a country’s trade intensity, the substitutability between its and its competitors’ products, and how sensitive domestic demand is to lower rates. The point is that this is not a zero sum game; QE raises a country’s GDP by more than any improvement in the trade balance.

There are other spillovers. Lower interest rates in one country will generally tend to send investors searching for better returns in another, lowering that country's interest rates and raising its asset prices. By loosening foreign monetary conditions, that boosts growth, though this may not be welcome if those countries are already battling excess demand and inflation.

Determining whether QE is good or bad for a country's trading partners requires working through all these different channels. In 2011, the International Monetary Fund concluded the spillover of the Fed’s first

round of QE onto its trading partners was significantly positive, raising their output by as much as a third of a percentage point, while the spillover of the second round was slightly positive. As the nearby charts show, the IMF concludes the weaker dollar was indeed slightly negative for the rest of the world, but this was more than offset by the positive impact of lower interest rates and higher equity prices.

The 1930s are often cited as a lesson in the evils of competitive devaluation, but they actually show something quite different.

In the 1980s, Barry Eichengreen at the University of California, Berkeley and his co-authors demonstrated that the first countries to abandon the gold standard recovered much more quickly from the Depression than those that stayed on gold longer. Mr Eichengreen has just written a new paper, to be published soon in the Journal of Policy Modeling, elaborating on the international spillovers as countries quit gold, and their implications for today. I strongly recommend it. In it, Mr Eichengreen describes three channels by which leaving the gold standard boosted a country's output:

First, central banks engaged in what we would now call forward guidance. They committed to keeping interest rates low, expanding supplies of money and credit, and raising the domestic currency price of gold for as long as it took for conditions to normalize … Second, the change in monetary policy had a positive impact on asset prices and therefore on investment. Third …[c]ountries abandoning the gold standard and taking steps to depreciate their currencies were able to expand their exports relative to countries remaining on gold. This channel is controversial because the expansion of exports took place at the expense of other countries, worsening the latter’s economic difficulties…

As Mr Eichengreen notes, determining the net effect of these spillovers on other countries is muddied by these offsetting effects. The direct spillover of depreciation was negative, while the spillover of increased money and credit was positive, as capital outflows "helped to relax conditions in money and credit markets and moderate expected deflation in other countries." Nonetheless, he concludes that from both calibration exercises and historical literature, the spillover effect was net negative. This might have been averted if everyone adopted the same monetary policy, i.e. quit gold at the same time:

In circumstances where different countries had all experienced the same deflationary shock, the appropriate foreign response was to meet monetary expansion with monetary expansion and currency depreciation with currency depreciation. Two dozen countries, primarily trade and financial partners of the United Kingdom, responded by depreciating their currencies along with sterling. In other countries, considerations of history, politics and ideology delayed or even precluded recourse to this first-best response. Some countries in this position responded with capital controls and trade restrictions designed to switch demand toward local producers. This was less efficient than the first-best response both for them and for their foreign partners.

An international coordinated response, it was argued then and has been argued since, would have been better. But … the sum of the first-best unilateral responses was also the global optimum. Explicit coordination was not needed to achieve it. With few exceptions, countries had arrived at this set of policies (the depreciation of currencies against gold was all but universal) by the end of 1936.

The irony is that to the extent devaluation led to protectionism and falling trade volume, it was more due to countries that did not devalue. In an earlier paper, Mr Eichengreen and Doug Irwin of Dartmouth College note that countries that remained on gold were more likely to erect protectionist measures against imports than countries those that quit. So while imports did collapse, they fell far less for countries that abandoned gold (like Britain, whose imports rose slightly between 1928 and 1935) than for those that stayed with it, like France, whose imports fell 15% (see nearby chart).

What are the lessons for today? The key insight of Mr Eichengreen’s work was that the more countries abandoned gold, the more positive become the spillover effects: "what are now referred to as currency wars were part of the solution, not part of the problem." The analogy for today is that countries whose currencies are rising because of easier foreign monetary policy should ease monetary policy as well, assuming they, too, suffer from weak demand and low inflation. In fact, America’s QE and the resulting upward pressure on the yen was one of the key reasons Shinzo Abe, Japan’s prime minister, demanded the Bank of Japan take a more determined assault against deflation. The fact that global stock markets have been chasing the Nikkei higher as Mr Abe's programme is put in place suggests investors believe this is virtuous, not vicious, cycle. This also implies that the euro zone ought to respond with easier monetary policy which would both neutralize upward pressure on the euro and combat recession in the euro zone.

But Mr Eichengreen notes that unlike in the 1930s, today there is a large group of emerging economies who did not suffer a deflationary shock and thus would not benefit from easier monetary policy. Their optimal response, he says, would be to tighten fiscal policy, which would cool demand, putting downward pressure on interest rates and their currencies. But, as in the 1930s, he notes that there are political and institutional barriers to doing so, and instead they are opting for second-best policies such as capital controls, currency intervention, and in some cases, import restrictions.

Those actions have yet to trigger a significant backlash because they are, for the most part, simply trying to slow rising currencies. The countries that have embarked on QE have so far largely steered clear of those measures, with one exception, Switzerland (which I discuss below.) Indeed, Mr Abe’s rhetorical assault on the yen constitutes currency war only insofar as traders think it will be followed by intervention. If Japan stays out of the markets, as the G7’s recent statement suggests, there is no reason to attribute the yen's decline to anything other than the Bank of Japan’s monetary policy.

There’s an interesting debate over whether even intervention constitutes currency war. Economists traditionally thought such intervention had limited effect. If the central bank intervenes but does not change expectations about interest rates, investors will simply buy up all the currency that the central bank sells until expected returns were once again equal across all markets.

But Joseph Gagnon of the Peterson Institute for International Economics challenges this conventional wisdom. Studies that found intervention does not work were done in the 1980s and 1990s when the sums were far smaller, he says. Central bank intervention is now hundreds of times larger. He explains in an interview:

Japan did $177 billion of intervention in 2011. When countries intervene on that magnitude, I don’t think all the hedge funds and investment banks in the world are enough to neutralize that effect. They’re not willing to gamble more than a few tens of billions. Hedge funds need differential rates of return to induce them to take opposing positions. And the riskier it is, the more they have exposed, and the higher return they need. They expect to make money because government is distorting markets in a way they think is not sustainable, but governments can distort markets longer than you can stay solvent.

This has parallels to the debate over QE. Skeptics like Michael Woodford believe that if the central bank does not change the public’s expectations of interest rates or inflation, no amount of bond buying will alter asset values or stimulate growth. But advocates like Mr Gagnon believe investors have a “preferred habitat;” they hold certain types of bonds or assets because of legal or institutional constraints, even if their returns seem too low relative to their own expectations of interest rates.

Most intervention is sterilized: the central bank is selling currency previously held by the public, so the money supply does not change. Unsterilized intervention, in which the central bank prints the currency it sells, as the Swiss National Bank has done, has different implications. It is, in practice, QE plus sterilized intervention. Imagine an investor sells euros to the SNB and gets newly printed Swiss francs. He invests them in Swiss government bonds, buoying their prices. The result is exactly the same as if the SNB had bought Swiss government bonds with newly printed money, then sold those bonds in order to buy foreign exchange. Based on our analysis here, it is getting one thing right (the QE) and one wrong (the intervention). The SNB justified its action based on the fact that its domestic bond market was too small to acommodate QE in sufficient size. Its trading partners must have agreed, because they didn't kick up much fuss. Or perhaps Switzerland is too small to matter. Japan should not assume it would get the same, hands-off treatment.

John Maynard Keynes is often viewed as an economist who tolerated and supported inflation as an byproduct of sustained, managed, economic prosperity. Yet this excerpt from The Economic Consequences of the Peace, written just at the end of World War I, makes clear how fully he understood inflation's potential to destroy the fabric of society:

Concurring with Lenin he wrote 1919:
The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

This article is too sanguine.
QE is a slippery slope that will come home to roost just when those who think that somehow through "creative" manipoulation they can cheat the "cause and effect" of unbridled indulgences, it will hit with unmitigated consequences.

IF cheating the savers and retirees of the value of their deferred gratification and reward those who borrow and spend other people's savings is morally acceptable then by all means. Else, it is best to stick to the simple and righteous solution -- when in debt, cut spending until one can afford to spend again. No "ifs" and "buts". Just do it. No pain no gain.

What is lost in your comment is the fact that QE feeds first and foremost those who threatened currencies and nations in the first place, the same private financial sector who initiated the financial crisis. It's them who benefit most. And this is also why the big American Banks are hoping for the continuation of Quantitative Easing way into early 2014.

Experts are pointing out that real wages – adjusted for inflation – have fallen in both the US and UK, where QE has been a key tool for boosting growth. In Germany, meanwhile, where there has been no quantitative easing, real wages have risen.

The case made for QE is a very weak and spurious one. Nothing is told about the downside and negative effects of QE.

These are:
- bubbles are created and sustained esp. In the real estate sector
- pension plans and their assets get devalued
- prudent savers pay for imprudent overstretched debtors

The illusion is nurtured that a debt problem can be resolved by monetary measures. There is hardly a more complacent report than the BoE report on the effects of QE. It reminds me of the progress report of the Central comittee of the communist party of the USSR in the eighties.

Distorting the term structure of interest rates does not necessary stimulate investment or consumption. Why should someone invest when he knows asset prices are inflated because of too low interest rates. Waiting for the bubble to burst is the better option. The same applies for consumption.

QE is actually a tax levied on savers. Central banks should be depoliticised and should stay out of distributional measures.

You are talking about the Fed creating money to buy MBS and Treasuries from its private sector member banks. Yes, this helps foremost the concerning banks to take old debt off their balance sheets, replacing it with fresh liquidity. However, eventually it will be loaned against new collateral to other banks – or as loans on the overnight market.

The fact that banks cannot lend reserves outside of the banking system doesn’t matter, since it finally will end up on the financial market . . . and consequently with end-consumers, e.g. house buyers or businesses. This might or might not have an inflationary effect, but how many nooks and corners it took to get there is actually secondary. The overall money supply in circulation increases by the amount of the freshly created money - without a necessary growth of the real economy. Only this matters.

But even this 'secured QE' is not the case when it is massively applied directly to balance the federal budget. At the end of 2011 outstanding treasury securities totaled $10.2 trillion. This was up from $9.2 trillion in 2010, a rise of approx one trillion dollars that was used to finance the federal budget deficit.

Yes, some of these low-interest securities were picked up by foreigners (about $287 billion), but most of the slack was picked up by the Fed against ‘empty’ IOUs. To be precise, the Fed was buying 'thin air' in return for $642 billion in newly ‘created’ money as part of its quantitative easing program.

This hocus-pocus is what I’ve meant. Some more years and the world, with China leading the way, will declare open season on the greenback . . . if this Ponzi scheme doesn’t end soon.

My stance: Production of fiat money can never create sustainable wealth, it creates bubbles which, sooner or later, will burst with devastating consequences. Only the production of useful products will, long-term, create wealth.

Okay, if the production of fiat money can create wealth then let's be really bold.

Why not wipe out poverty in the U.S. entirely (or in the whole world for that matter). Let's start with making everyone in the U.S. rich beyond their dreams. Let's mint those coins Paul Krugman was writing about in New York Times (January 7, 2013) and let's deposit them with the Fed, and thereby create trillions in new money.

How much fiat money do we need to make all Americans rich?

The current population of the U.S. is about 310 million. 'Rich' in today's terms means that every resident has at least 1 million dollars at his free disposal. Okay?

Some easy math tells us that for creating new "wealth" of 1 million dollars for every man, woman, and child in the U.S. we need $310 trillion in new money.

Now, let's have Congress authorize the spending of this $310 trillion by actually giving each man, woman, and child their $1 million share. Poverty is now eliminated, right?

Of course, the deficit has exploded, but that's okay because we are assured that there won't be any inflation, so there will be no harm.

Hooray, then we're all rich without lifting a finger! All of our dreams have come true! Yippee!

I'm used to Free Exchange being one the best columns of The Economist but this article disappoints me no end.
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Different initials describing the authorship?
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I repeat humankind is to Economy now as we were to Astronomy in the 16th century. We know that Earth goes around the Sun (markets are more efficient than planned economies) but that's about all we know.
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The Kepler of economics who will discover the equations of economic behaviour, hasn't been born yet.
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So, let's be careful: we know from experience - and a tiny bit of theory - that debasing currencies tends to trigger short term absolute mayhem: Germany 1924, Hungary 1946, Yugoslavia199?, Greece 194?.....
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Are we so eager to repeat it?
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Smoking is a slower form of suicide.

Whatever politicians say, inevitably all sovereign states due to nationalistic pressures, will use whatever at their disposal against all other countries if competitive advantage can be obtained, no matter whether that can be being openly about what they are doing or by stealth. Unfortunately it is the nature of globalization and national vested-interests that is inherent within all government thinking. Therefore people will have to get used to the fact that through necessity, nations will do whatever they can to get the upper economic hand. All others are doing it so no country is going to be different and shoot themselves in the economic foot. But wouldn't it be nice if politicians looked for once to a pluralistic form of cooperation and shared their economic wealth. And I don’t mean the EU in this respect. Then through cooperation, communication and collaboration we might eventually see a sustainable world-order. Unfortunately again as history has shown continuously, politicians are not built to do this between other competing nations and their politicians. Considering this historical aspect of nationalistic governments, the world will continue in a spiral of economic conflict and where eventually using this mindset, it will eventually implode as natural resources run out and the world's population exceeds 10 billion. Around 2032 will be the crunch time in my opinion and something that research data from both the Royal Society (http://royalsociety.org/uploadedFiles/Royal_Society_Content/policy/proje... )and MIT http://www.naturalnews.com/035700_MIT_economic_collapse_simulation.html) agreed with last year. Indeed they both predicted through their individual research that the world would implode around the same time. The only way to stop this eventuality happening is for nations to construct and operate the vast ORE-STEM complex for the good of all humanity and creatively developed and supported by some of the greatest minds of the 20th century – Glenn Seaborg, John Argyris, Jerome Karle, Xanthos Menelaus et al.

Monetary expansion without comparable accretion of the real economy always bears the danger of inflation once this money finds its way into consumer wallets (which failed so far in the US). The lasting inflationary effect will increase as bigger the excess reserves are that the various rounds of QE produced once the economy fires up again, without a functioning exit strategy to drain the reserve balances to its pre-QE level.
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It is also doubted here that QE works the way its proponents propagate, at least not in a sluggish economic environment (it surely would boost an already booming economy).
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In Great Britain, e.g., the BoE's cheap money drove down gilt yields and annuity rates and forced pensioners, savers and companies to hoard cash to counter the negative impact of QE on their investment income, or they simply exchanged cash into dormant precious metals.
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This counter-effect is one of the reasons why QE failed to stimulate recovery; instead it caused a collapse in the velocity of money circulation. BTW, similar happens in Japan since 2001.

I use the term "fictitious capital" to describe what the Big Bankers, public and private, are attempting to inflict on the ordinary 99% people who through their entrepreneur led labour create ALL REAL value, capital included.
In the middle of the 19th century Karl Marx coined this term to describe the notes and loans that governments and gentry used to finance wars, luxuries, estates and otherwise living beyond their REAL means. Only his term was really new, Aristotle and many who followed him before Marx, elaborated on the dangers of worthless money. Democratic Athens and militaristic Sparta supplied the concrete examples of each.
At Marx’ time such paper would accrue during "Boom" times as the economy expanded and would usually max out at around 10-12% of a countries GDP. As long as the good times rolled on it was not a problem, but came a crisis of over production (of all the wrong things) there would be the day of reckoning. Ergo, the bill collectors came and cash not paper promises was the order of the day. This resulted in a variety of ways to settle; some were paid in part or in full but more often bankruptcies and swindles resulted. Then the stage was set for the next cycle - boom bust.
Today though the situation with 'fictitious' or 'counterfeit capital is vastly different.
100 years of pumped up growth for growths sake first based on the now discredited ideas of John Maynard Keynes has produced a situation where some 20 times the worlds gross product exists as fictitious capital, a counterfeit collection of deficits, bills, bonds, exchanges, derivatives, bubbles (real estate) swaps and the latest fraud, "quantitive easing". (Le Monde Diplomatique puts it at 50 times)
$$Dollars, Єєuros, RRubles, Ль, &с…all the same!!
To grasp the idiocy inherent in these figures imagine approaching your friendly personal banker for a loan, line of credit or mortgage some 20 times your net collateral worth; how far do you suppose that might fly?
Yet with the above listed gimmicks, that is precisely what members of the bankster clique, supported by military-industrial complexes do amongst themselves.
Every day we read of new Central and private bank meetings, "Increasing capital base" is their current fad.
OFF THE WALL! There is not a farthing of REAL capital in all of this rat-bag of lies, swindles and manipulations.
REAL capital is ONLY accumulated labour dedicated to enhancing future production. Ergo entrepreneur led LABOUR (of the 99%) is the only source that can augment existing capital or create new.
The banksters, led by the IMF, USA FED, and British "financial services" are well aware of this fact but that will not stop them from attempting to download this fraud onto the REAL product of Labour in the form of "bailouts" of "sovereign" debts, to be serviced by taxes on the REAL producers.
The 99% will be robbed of (much prepaid) social services and benefits to service "debts". “Austerity” it is called when those who had NO hand in running up this fraud are required to pay interest that will amount to 40-60% of the future product of their labour. Gone will be pensions, good schools, decent medical care, infrastructure (e.g. utilities that work reliably), environmental protection; even adequate diets will be history. "Let them eat cake!" exclaimed La Royale Marie Antoinette.
Let them eat (genetically modified) garbage, implies La Grande Dame Christine La Garde, of the International Monetary Fascists(IMF)
So Greece, you are the front line today, Italy and Spain may be next, but do not think that any country, including the relatively well off Germany or the resource rich Canada and Australia will be forever exempt. Ms Merkel, beware!
The "poor little ones" are but appetizers; they will whet the appetites of these financial service vultures and jackals. For certain, like buzzards flocking to road kill. if they succeed in the beginning the taste of financial carrion will make them hunger for more, and they will finish only when the 99% of humanity is subject as debtors to enslavement by the 1%.
But this does not have to be!
Greece you can repudiate the fraud! Lead the way! DEFAULT is the way to go!
99%; be inclusive! Occupy-Idlenomore, Support Greece and Slovenia today, Italy Spain, …, &c. tomorrow and.../?/ the world in future.
Hold on to your souls! Hang tough!
You have a WORLD to WIN!!
For those of you who may have read this comment previously, Churchill’s advice immediately springs to mind:
“When you have an important point to make, don’t try to be subtle or clever. Use a pile-driver. Hit the point once. Then come back and hit it again. Then hit it a third time – a tremendous whack.”

thanks for the theory lesson, but you've been slightly brainwashed by the establishment. Its better to be honest that QE is not having much effect on the real economy anywhere in the world by "lowering the inflation-adjusted real interest rate", and that the real (but unspoken) hope is that it will help America, Britain and Japan export their way out of trouble by weakening the currencies.

The hypocrisy is understandable from officials - no government can afford to admit that they are trying to weaken their currency (unless they are strong and silent like the Chinese). But the media should feel free to call it like it is.

Developing countries questioned QE when it was first proposed as Mugabe-style money printing. Back then, Western governments said what rubbish, of course not, its totally different because we're responsible people and can be trusted not to misuse this tool. Then a while later, one British finance minister said to his central bank governor - look, there's no point my paying interest on all these governments bonds you've bought. Let's cancel the interest and save some money. And now we read oped articles and speeches from BRitish worthies wondering whether there is in principle anything wrong with central banks just printing money and giving it to the Government to spend.

The road to Harare is paved with good intentions. And elevated on a buttress of hypocricy.

I wonder if the 'Tragedy of the Currencies' will ever become recommended reading for would-be Central Bankers.
There will be no real recovery (for ordinary people) while the meddling continues. Sadly, the meddlers and their friends will be just fine.
We have a world awash with money created by financial legerdemain rather than by productive enterprise. Conjuring up more is not going to help, regardless of the sleeve from which it is produced.

Fact, however, is that we only arrive at this point when the real economy (not an economy on steady life-support) becomes productive, competitive and thus intrinsically healthy. This can’t be achieved through never-ending monetary expansion.

Regarding the Bank of England’s rounds of QE the Guardian noted, “Quantitative easing is good for the rich, bad for the poor” and continued: “The Bank of England's recession-busting policy of buying up billions of pounds of bonds may have contributed to social unrest by exacerbating inequality, according to City economists. As the Bank of England considers unleashing a fresh round of QE, Dhaval Joshi, of BCA Research, argues the approach of creating electronic money pushes up share prices and profits of institutional investors without feeding through to wages.” (end quote)

It is true that QE doesn't necessarily create an overall inflation in a recessive economy as long as the created money isn't directly injected into the pockets of consumers and businesses. But what quantitative easing does in any event is to increase the excess reserves of the banks.
It's only when consumer optimism rises and demand becomes economically justified that banks use their excess reserves to ease lending policies and, maybe, create a spending spree. This is the moment when QE triggers the inflationary spiral.

The ECB exercises QE big-time. Germany's 'fixation' is not relevant, since the ECB is an entity defined by a majority of its members and not an extension of the Bundesbank. Also the area's inflation target is set by the ECB, yet by statute it should not exceed 2%. But this marker is exceeded all the time. Euro Area Inflation Rate averaged 2.27 Percent reaching an all time high of 5 Percent in July of 1991, right after the physical switch.

You seem to talk about national budget deficits and national debts, which the Latin Euro countries want to pool in form of eurobonds, but a majority refuses to take this road, among the latter is Germany. This refusal has nothing to do with "fixation on currency strength", but rather with "obsession with moral hazard" at the expense of the taxpayers in prudent countries.

If you believe that a currency war is being waged against the Euro, then keep in mind what John Maynard Keynes had to say about it (quote): "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. . . . By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers' . . ."

What is lost in the commentary is the FACT that QE and these actions have been required to combat arbitrage that threatened currencies and Nations. Hedge funds and bond vigilantes precipitated this, it was the private financial sector, unbridled by regulators who initiated the financial crisis.

Far from being reckless and threatening hyperinflation, the CB's are acting mostly to preserve the life of their Nation's economies. If there are fingers to be pointed and alarms to be raised let's go back to AIG London, Bear Sterns, and every other over-leveraged time bomb that almost brought the whole thing down on our heads. Contending with that crisis has tested theory and policy, and it is far from over.

Hyper-inflation fears (unfounded by any real market measure) are literally meaningless compared to having nearly been thrown onto the gold and lead standard. Better to have excess reserves as the CDS market continues to unwind and securities continue to be written down than to perform this knife juggling act on a highwire with no net.

In sum, CB's have had to be even scarier and audacious than the hedgies and bond vigilantes, that is where we are at.

You can't argue with these guys because they have written the rules in their favor. Only models that assume a big payoff from printing money are allowed. They are totally blind to the circular reasoning. Also, they commit the post hoc fallacy with abandon.
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Printing money can have a short run effect under the right circumstances, but in the medium term it causes unsustainable booms that end in recessions and wipe out most of the gains made.

Maybe the murderous spending spree you seem to fear would be better controlled if the injection of cash into households came through better income rather than fickle and bubble-prone consumer credit.

Of course this would mean a brake on the current confiscation of all productivity increases by so-called shareholder value, with the ensuing frustration of the workforce being allayed by generous (at first) personal credit. But don't count on it.

A suicidal free fall which has been going on for about 30 years (before which average income and productivity followed parallel paths) can only go on until it hits the pavement with a sickening thud.

The aggressive nations like America and Japan will win in this "currency wars".
The Europeans are too fractious and bureaucratic to respond timely and effectively. The BRICS countries are still not sufficently developed in their economy as well as financial institutions to withstand the twin assualts from the America and Japan.
America and Japan = 1
Europe = 0
Rest of the World = dock-ed
If the American and Japanese media says they are not currency manipulators, then they are not. Period.
Russia is the evil state. Period.
China is the currency manipulator. Period.
India, Brazil -- well, they are not a threat yet. So, no need to label them yet. When the day comes, we will then think of something to label them.
Different times different banners. Methods change, tools change, but interests and motivations permanent. Such is the story of mankind.
When a rabbi addressed Jesus 2000+ years ago thus: "Good teacher,....".
The Lord Jesus replied: "Why do you call me "Good teacher"? Do you not know that no one is good? Only God is good."
Jesus said this not because He did not believe Himself to be good, but to point out to the learned man that if he, as a man of study and wisdom, truly believe what he is addressing is appropriate, then surely he would realize that Jesus is God incarnate. Secondly, to point out what is common sense to even a wise man that no human, and by extension, no group of humans or society, is good. All are selfish. If any looks to be "good", there in also you've found a relatively more consummate hypocrite.